Infectious Greed: Restoring Confidence in Americas Companies

There are four types of people involved in the public corporation: shareholders, directors, officers, and employees . Shareholders literally own the public firm. As owners , they capture the economic value of the firm in the form of stock price increases and dividends . They also suffer the losses when a firm fails. In general, there are two types of shareholders: individuals and institutions (such as pension funds and mutual funds). For now, we will think of shareholders as individuals, since this has direct pertinence to us, but we will also discuss the importance of institutional investors in a later chapter. Directors hire, oversee, evaluate, and fire the officers of the firm. In doing so, they are supposed to represent the interests of the shareholders. (We will dedicate an entire chapter to directors later in the book.) The officers, such as the chief executive officer (CEO) and/or president, represent the firm's top level of management, and they are ultimately responsible for the day-to-day operations of the firm. Employees have a stake in the firm because they dedicate their human capital, i.e., their labor, to the firm. By holding company stock in their retirement plans, they, too, are sometimes owners.

There are others who also have a stake in the firm. Creditors, government officials, suppliers, and customers are stakeholders because they deal with the firm.

With so many people involved with the company, who actually controls the corporation? Who makes the big decisions and has the most power? One might think that it is the owners who control the firm. Or the boards of directors who hire the officers might have the control. But, for the most part, it is the officers who control the firm.